What is an accrual?

An accrual is an accounting entry that records income earned or an expense incurred in the period it belongs to, before cash moves or an invoice arrives. A typical example is the electricity used in March but billed in April. Accruals are estimates, so when an AI agent proposes them, the reasoning matters as much as the number.

Why do accruals matter once agents act?

Month-end close depends on accruals. Without them, costs land in whichever month the invoice happens to arrive, and the accounts misstate performance. Finance teams build accruals from purchase orders not yet invoiced, contracts, usage data and past patterns, often in spreadsheets that one person understands.

An agent can do this assembly well: find goods received but not invoiced, read contracts for recurring charges and propose an entry with its working. The risk is that an estimate posted by an agent looks as authoritative as a booked invoice. If the agent's basis is wrong and nobody checks, the error flows into the accounts. Moving the work from a spreadsheet to an agent does not remove the estimate risk, which is why spreadsheet risk does not disappear with agents.

How do accruals work in practice?

At month end, the finance team:

1. Identifies costs incurred with no invoice yet: goods received, services used, contracts running.
2. Estimates each amount from the best evidence: purchase order value, contract rate, usage, last month's bill.
3. Posts the accrual as an expense and a liability.
4. Reverses it in the next period, when the invoice arrives and is booked.
5. Reviews large or unusual accruals and the gap between accrual and actual invoice.

An agent can draft steps one to three and track step four. A person approves accruals above a set threshold and reviews the estimates that rest on judgement rather than a contract.

An example from a services company

Take a services company closing its books. The agent finds that a contractor worked through the month under a contract with a daily rate, but no invoice has arrived. It reads the timesheet system, which shows the days worked, multiplies by the contract rate and proposes an accrual with the timesheet and contract attached.

It also finds a cloud hosting bill that varies monthly. It proposes an accrual based on the average of the last three months, marked as an estimate with lower confidence. The financial controller approves the first without change and adjusts the second, because she knows usage spiked after a product launch.

How is an accrual different from a provision?

An accrual covers costs that are certain to have been incurred, where the amount and timing are known or closely estimable, such as services already received under a contract. The uncertainty is small.

A provision covers obligations where the amount or timing is materially uncertain, such as a legal claim, a restructuring or expected warranty costs. Provisions involve more judgement and usually more senior approval. An agent can draft both, but a provision should always be held for a person, because the estimate itself is the decision.

Which terms sit next to accrual?

• Prepayment: the reverse case, cash paid before the cost is incurred.
• Accrued income: revenue earned but not yet invoiced, different from overdue invoices chased through dunning.
• Depreciation spreads the cost of an asset over its life; whether an AI agent can run depreciation on fixed assets raises similar questions about estimates.
• Our guide to AI agents for finance: books you can audit sets out how posting authority is earned.